The information ratio shows how consistently a manager beats the benchmark. An IR of 0.5 is good, 0.75 very good and above 1 exceptional – few managers sustain that over many years.
How to use the Information Ratio Calculator
- Beginning portfolio value
- Ending portfolio value
- Benchmark return
- Tracking error
Results update as you type, and every field accepts the units shown in its menu.
How it works
Enter the beginning and ending portfolio values, the benchmark’s return and the tracking error.
Tips
- Use the nominal annual rate and pick the compounding frequency your bank or broker states.
- Small differences in return or fees compound into large differences over decades.
- Run the calculation with a cautious, a central and an optimistic return to see the range of outcomes.
- Past returns do not guarantee future returns – nothing here is investment advice.
Common mistakes to avoid
- Comparing an APR with an APY or effective rate.
- Ignoring inflation, taxes and fees when judging a real return.
- Entering a percentage as a decimal (5 instead of 0.05 is correct here).
Inputs explained
| Field | What to enter |
|---|---|
| Beginning portfolio value | Amount in your currency |
| Ending portfolio value | Amount in your currency |
| Benchmark return | In % |
| Tracking error | In % |
What each result means
- Portfolio return = ([Ending portfolio value]÷[Beginning portfolio value] – 1)×100
- Excess (active) return = [Portfolio return] – [Benchmark return]
- Information ratio = [Excess (active) return]÷[Tracking error]
Example values
How the main result changes when Beginning portfolio value changes and everything else stays at the example values above:
| Beginning portfolio value | Information ratio |
|---|---|
| 50,000 | 28.75 |
| 75,000 | 10.083 |
| 100,000 | 0.75 |
| 125,000 | -4.85 |
| 150,000 | -8.583 |
| 200,000 | -13.25 |
Formula
Portfolio return = (ending value − beginning value) ÷ beginning valueInformation ratio = (portfolio return − benchmark return) ÷ tracking errorWorked example
Inputs — Beginning portfolio value: $100,000; Ending portfolio value: $112,000; Benchmark return: 9 %; Tracking error: 4 %.
Results — Portfolio return = 12 %; Excess (active) return = 3 %; Information ratio = 0.75.
Frequently asked questions
What is a good information ratio?
Around 0.5 is good, above 1 is exceptional.
What is tracking error?
The standard deviation of the difference between portfolio and benchmark returns.
How is it different from the Sharpe ratio?
Sharpe uses the risk-free rate; IR uses a benchmark.
What formula does the Information Ratio Calculator use?
Portfolio return = (ending value − beginning value) ÷ beginning value.